Billionaire investor George Soros said China’s economy is facing a hard landing, a situation that will contribute to global deflationary pressures and prompted him to wager against U.S. stocks.

"A hard landing is practically unavoidable," Soros said Thursday in an interview with Bloomberg Television’s Francine Lacqua from the World Economic Forum in Davos. "I’m not expecting it, I’m observing it.”

Soros said while China has resources to manage the situation, the slowdown there has spillover effects on the rest of the world. The investor said he shorted the Standard & Poor’s 500 Index, which is down about 8.5 percent for the year, and advised that it’s still too early to buy equities, echoing comments from other top investors this week who said they don’t see a bottom yet for markets.

Soros said that at the end of last year he also bought U.S. government bonds, shorted raw-material producing countries and bet that Asian currencies would fall against the dollar.

“The key issue is deflation,” Soros said, citing the impact of falling oil prices and competitive devaluations, in addition to the slowdown in China. “It’s a condition that we’re not used to.”

Investment managers such as Guggenheim Partners’ Scott Minerd and DoubleLine Capital’s Jeffrey Gundlach have warned that markets probably have further to fall. The S&P 500 may drop to 1,650 and oil could fall as low as $20 a barrel as investors flee for safety, according to Minerd, chief investment officer of Guggenheim Partners.

"I expect a protracted decline in the S&P 500," Gundlach, co-founder of DoubleLine, said this week. "Investors should sell the bounce-back rally which could come at any time."

Investors are skeptical on the outlook for inflation with oil having lost about 20 percent this month amid signs that China’s economy, the world’s second-largest, is cooling. Traders doubt that the Federal Reserve will be able to meet its 2 percent inflation target or raise interest rates as aggressively as policy makers predicted last month.

Fed outlook

Soros said he would be surprised if the Fed raised interest rates again after increasing them in December for the first time in almost a decade. He said the central bank could even decide to cut borrowing costs again, but it would not help much in stimulating the economy because the effect of monetary stimulus is diminishing.

Soros said the Fed made a mistake in raising interest rates when it did, after waiting too long and missing its opportunity. By the time it moved to raise rates, deflation had already set in, he said, and consumers were less likely to spend money on goods because they expected to be able to buy them more cheaply in the future.

Soros predicts that 2016 will be “a difficult year” in the markets, which could see further declines.

“If you have a real bottom, it’s always retested,” he said.